In the IT staffing industry COGS (Cost of Goods Sold) means the amount the staffing company paid the subcontractor for procurement of the services of the actual consultant who was deployed at the customer’s work location. When things are normal, COGS will be lower than the amount that is charged to the customer. However, in theory, it can be equal to COGS or lower sometimes, in which case the IT staffing company will actually run a loss.
If all stakeholders in a contract – the principal IT staffing company providing service to the customer, the customer business, the subcontractor and the consultant deployed by the subcontractor are all within the bounds of a single state, then the tax impact will be simpler to calculate. Most of the time, however, your IT staffing business will be dealing with complex to highly-complex situations:
- All stakeholders in a project are domiciled in the same state. This is perhaps the simplest when taxes have to be calculated. The principal IT staffing calculates the applicable tax rate as prescribed by the state and is paid.
- The IT staffing company is located in a place outside the state where the customer has hired the services. The consultant, subcontractor and the customer are all within the state of the project. This can be a little more complex than the earlier scenario that was described. In this case, the IT staffing business will have to pay tax that is different from the tax rate in its state of domicile. Often, the IT staffing companies in these kinds of situations register for tax purposes in the state where the customer is located and pay state taxes at rates prescribed by the state.
- A little more complex situation arises when the principal IT staffing firm, the subcontractor, the customer and the consultant provided by the subcontracting staffing company all are domiciled in different states. This is altogether a different ballgame for the accountants. The situation can get even more complex if the project itself is located in multiple states and subcontractor-supplied consultants too come from different locations across the country. There are many other permutations and combinations that can take tax computation to extreme levels of complexity.
As an IT staffing business manager, you will face tax-related issues when you send an invoice to the customer and your subcontractor sends you an invoice for the service it has delivered to the customer company. Calculating the actual tax liability requires extensive knowledge about the tax laws of all the states in the USA. For many businesses, a highly-priced accountant is a solution, but you can also accomplish the task with CONSULT faster and easier.
CONSULT’s unique algorithm will calculate the tax liability with great precision (and in some cases where it is not necessary, you will be advised accordingly). CONSULT is the preferred invoicing automation solution for IT staffing companies that want accuracy and higher productivity in their finance department. It is a portable solution because it is offered as a cloud-based SaaS that empowers employees to work while on the move and remotely.